ICAI Expands Mandatory Audit Quality Maturity Model (AQMM v2.0) Applicability: What Audit Firms Must Know
The Institute of Chartered Accountants of India (ICAI) has issued a significant announcement widening the mandatory scope of the Audit Quality Maturity Model (AQMM) version 2.0, bringing a broader range of audit firms under its compliance umbrella. This expansion, rolled out in a phased manner, signals ICAI's continued commitment to elevating audit quality standards across India's financial ecosystem — covering group entities, large unlisted public companies, and public interest entities.
Background: What Is the AQMM and Why Does It Matter?
The Audit Quality Maturity Model (AQMM) is a structured framework developed by ICAI to assess and improve the quality of audit practices carried out by Chartered Accountant firms across India. It establishes benchmarks for audit processes, documentation, internal controls within firms, and overall service delivery standards.
Initially, AQMM compliance was mandatory only for a limited set of audit engagements. However, recognising the growing complexity of corporate structures and the need for consistent, reliable financial reporting, ICAI has progressively widened its reach.
Key Point: AQMM is not merely a self-assessment tool — it is a mandatory compliance requirement for firms subject to Peer Review, and non-adherence can have consequences on a firm's peer review standing and eligibility to undertake certain categories of statutory audits.
Existing Mandatory AQMM Applicability (Pre-Expansion)
Prior to the revised announcement, AQMM compliance was already mandatory for firms conducting statutory audits of the following categories of entities, with the exclusion of firms engaged solely in branch audits:
- A. A Listed Entity
- B. Banks other than Co-operative Banks (except Multi-State Co-operative Banks)
- C. Insurance Companies
This baseline applicability ensured that firms handling high-stakes, public-facing audits maintained a defined level of audit quality maturity.
The Revised Announcement: Phased Expansion of AQMM v2.0
In partial modification of the Announcement dated 11th August 2025, ICAI has issued a clarification and a revised framework that extends the mandatory AQMM obligation to additional categories of audit firms. The expansion is structured in two phases, with separate effective dates.
Phase 1: Effective April 1, 2026
Two distinct categories of firms will come under mandatory AQMM v2.0 compliance for Peer Reviews conducted on or after April 1, 2026:
Category 1 — Firms Auditing Group Entities of Core Regulated Entities
Firms that are subject to Peer Review and undertake audits of any of the following group entities will now be covered:
- Holding companies of Listed Entities, Banks (other than Co-operative Banks, except Multi-State Co-operative Banks), or Insurance Companies
- Subsidiary companies of the above
- Associate companies of the above
- Joint Ventures of the above